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January 2018 | Base Metals


Metals looking mixed, firmer dollar may prove a headwind

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Base metals prices trading on the London Metal Exchange are generally higher this morning, Tuesday January 9, with copper ($7,159 per tonne), aluminium, nickel and zinc up by between 0.2% and 0.5%, while tin prices are little changed and lead prices are bucking the trend with a 0.3% decline to $2,598 per tonne.

Volume has been average, with 7,103 lots traded as of 07.23 am London time.

This follows a general day of gains on Monday, led by a 1.9% rise in lead prices, while aluminium prices bucked the trend with a 1.4% fall.

Palladium prices continue to climb, with prices up by 0.9% at $1,109 per oz - the metal set a record high earlier this morning at $1,113.50 per oz, overcoming the $1,110-per-oz high from January 2001. The rest of the precious metals are little changed, with spot gold prices at $1,317.98 per oz. This follows a 0.9% gain in palladium prices on Monday, while platinum prices were little changed and gold and silver prices were down by 0.1% and 0.5% respectively.

On the Shanghai Futures Exchange today, base metals prices are for the most part firmer, led by 1.4% and 1.3% gains in zinc and nickel respectively. Lead prices are up by 0.9%, copper prices are 0.8% firmer at 55,040 yuan ($8,470) per tonne, aluminium prices are up by 0.1% and tin prices are bucking the trend with a 0.3% drop. Spot copper prices in Changjiang are up by 0.2% at 54,420-54,520 yuan per tonne and the LME/Shanghai copper arbitrage ratio has climbed to 7.69 up from 7.61 on Friday.

In other metals in China, iron ore prices are down by 3.5% at 560.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are up by 1.3%, gold prices are stronger by 0.3% and silver prices are unchanged.

In wider markets, spot Brent crude oil prices are up by 0.36% at $68.11 per barrel, the yield on US 10-year treasuries is higher at 2.49%, and the German 10-year bund yield is at 0.43%.

Equities are for the most part firmer, led by a 0.7% rise in the CSI 300, the Nikkei is up by 0.57%, the Hang Seng is up by 0.35% and the ASX 200 is up by 0.09%, while the Kospi is off by 0.12% This follows a mixed performance in western markets on Monday, where in the United States the Dow Jones closed little changed, off by 0.05%, and in Europe where the Euro Stoxx 50 closed up by 0.24% at 3,616.45.

The dollar index, at 92.39, is rebounding have built a base in recent days after setting a multi-month low at 91.75 on January 2. If a rebound gets going from these levels then a double bottom could be in place on the charts. With the dollar showing some strength, the euro (1.1954) is giving back recent gains, while sterling (1.3548) and the Australian dollar (0.7847) are consolidating and the yen is firmer at 112.72. The yuan at 6.5155 is giving back some of its recent strength, it having been at 6.4739 on Monday, while the other emerging currencies are consolidating after recent gains.

Data out already today shows a pick-up in Japanese average cash earnings, while Japan’s consumer confidence dipped to 44.7 from 44.9 previously, German industrial production climbed 3.4%, after a 1.2% decline previously. Data out later includes German and French trade balances, Italian and EU unemployment rates, US small business index, job openings and economic optimism.

The base metals seem to be split into three camps, with copper and aluminium prices pulling back after setting fresh highs in late December, while lead and zinc prices are climbing and nickel and tin prices are consolidating in relatively high ground. We remain quietly bullish and see the longer-term outlook as being positive, and traders may well continue to front run that. We expect dips to remain well supported, although if the dollar starts to rebound then that may increase the headwind and make the upside going more labored.

Gold, silver and platinum prices have had strong rallies in recent weeks and prices are now consolidating. A stronger dollar could lead to prices pulling back, but the rebounds since mid-December do suggest sentiment has turned more bullish again. Palladium’s steady rally looks set to continue, supported by positive fundamentals.
 
This article was first published by FastMarkets as the Metals Morning View.

William Adams
FastMarkets


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